The Enron trial: business decisions as crimes

The WSJ's Peter Lattman, who's been watching the Enron trial deep in flyover country, posts from back in New York about "one of Skilling’s main defenses – that the government has criminalized corporate agency costs."

Lattman explains that phrase as "a fancy way of saying that the government has misused criminal laws in this case to punish questionable business transactions and bad business decisions," and quotes Tom Kirkendall – one of the best commentators on this issue.

This is a phrase I've often used (invented?), e.g., here, in relation to Enron, among other cases. Lattman notes that Skilling made much of this point on cross, often pointing out that the prosecutors didn't understand Enron's business. Lattman adds:

Let’s assume that no matter how hard Sean Berkowitz and the other young prosecutors study Enron they’ll never “get it,” to use a Skilling expression. If that’s the case, then how can the jury have a firm grasp of many of the sophisticated accounting and financial decisions at the heart of the government’s indictment? Will the jury give Skilling and Lay a free pass because Enron was essentially a collection of sophisticated accounting decisions and financial transactions that were fully vetted by Enron’s outside lawyers and auditors?

Actually, the government has a strategy around this -- focusing on simple points that the jury will understand, yet are peripheral to the main charges. Lattman has noted the importance in that regard, summarized here, of the "Photofete vignette," which involved "an apparent conflict of interest involving Enron’s business dealings with Photofete, a small company run by a former girlfriend."

This exchange relates to Skilling's credibility and willingness to engage in conflicts of interest. But these inferences are balanced by others.  Nevertheless, in a very complex case the jury may give more weight to this simple story than it deserves in the general scheme of things.

So the biggest fraud of the century is going to come down to Photofete? As I've pointed out in the post linked above, this is all part of what I've called the "corporate crime lottery," where guilt depends on such things as what juries will understand rather than on the essential wrongfulness of the misconduct.

As it happens, I'll be traveling tomorrow to Baltimore for a Friday roundtable on corporate crime at the University of Maryland School of Law (no doubt the Delaware Supreme Court will pick my time in the air to decide Disney). Many interesting corporate and criminal law folks will be there. I plan to talk about, you guessed it, the criminalization of agency costs.